Give 2012 Time to Find its Niche

Investors often take some time in January to decide where are they are valuing stocks, and which sectors they believe have potential, says asset manager Bryan Anderson. He’s proceeding with caution, and says he’s tracking companies with domestic-driven revenue streams.

Bryan, despite that being the name of your company, you said to me earlier that there may not be that much of interest right now when it does come to growth stocks. Tell us what you mean by that.

Bryan Anderson: Well, historically, January has been a very tricky month. There’s a lot of shifting going on by big institutions. We like to wait and let things settle down the first two or three weeks of the year before we try to identify growth leaders.

What we’ve seen pretty clearly and not shocking—those who are following the market know how much the prior growth leaders have come off. Ones like Netflix (NFLX) and OpenTable (OPEN) and some of those types of names had higher multiples, and yet there are names that remain intact, like Apple (AAPL) and a few others, especially in the biotech area.

So it’s a tricky period, and we just like to let things settle out for the first several weeks of the year before we get too involved.

Kate Stalter: Are you primarily looking at some of these larger-cap names—you just mentioned Apple—or are there mid-caps or small caps that you have on a watch list at this time?

Bryan Anderson: We try to cover the entire universe of size, and it just so happens now some of the larger growth names like the Apple and Google (GOOG) are doing better.

There’s been a real rotation since last summer away from a lot of the high-multiple growth names. Clearly the market has rotated towards larger cap, dividend-paying, steady. You can categorize them maybe as S&P 100-type names.

I think that reflects a concern by investors just pulling in the horns, not being so aggressive and wanting, if they have to be involved—institutions have to be involved—they really are wanting stability and pristine stories, predictable revenue. They’re just not willing, at this time, to get involved in more of the faster growth, aggressive, more speculative-type names, generally speaking.

There are a few. One area that was quite strong last year, and which has come under a lot of pressure, are the cloud-computing names. Salesforce.com (CRM) has topped, VMWare (VMW) has topped. And then when Oracle (ORCL) announced their earnings, it really kind of cast a pall over that entire group.

So it’s somewhat indicative of where we are in the cycle now, I think. Many of the prior growth leaders have topped, a couple leading groups have topped, and really what you’re left with are just a handful of those which are larger-cap, lower-multiple growth names.

Kate Stalter: A lot of the advisors that I’ve talked to in recent months—and they obviously have a different approach to yours overall—but many of them have been in favor of these big, blue chip, dividend-paying names. Is there any validity, do you believe, in that approach, going forward at this juncture?

Bryan Anderson: I think there is. There’s a real question out there about how much overall momentum is there in the economy.

Personally, I would favor those companies with a primarily domestic revenue-driven situation. Some of the larger caps have a lot of their revenue that’s derived from overseas.

There are several questions about this year. One of them, obviously, being the European debt situation driving austerity in Europe and the potential recession there. So in my opinion, you would want to be very careful about even the large caps—which derive a lot of their revenue or a high percentage of their revenue from Europe—and focus more on domestic-driven companies.

There will be other issues that are going to come up. Obviously, the presidential election will come up, and in some ways the improving economic data may be somewhat trumped by the fact that Wall Street, generally I think, wants to see a change in administrations. You know, they would, I think, prefer to have the current one replaced by a more business-friendly administration.

Then there’s the possibility of an oil shock if the tensions with Iran escalate. So if you put all that together between the European debt situation, our election, the situation in the Middle East, and it does make sense that investors would be looking for things that are very big, stable, predictable-type names and dividend payers.

Kate Stalter: On the other side of the spectrum, some of these smaller, newer growth names sometimes tend to bubble up. Anything in the background there that you’re tracking as possible watch list names?

Bryan Anderson: There are. I’m hesitant to mention any at this point. Maybe if we talk in another month or so, there will be some names.

There are names like Nuance (NUAN), which is essentially the driver for Siri, the voice recognition, and the Apple 4S; you know, that type of a name. I just read an article today discussing how the demand for data is really being driven quite heavily by the new voice recognition in the Apple iPhone 4S. So there are situations out there like that.

But again, I think at this point of the year we like to see things kind of settle down, and see if we can get some leadership really established. That typically takes several weeks to a month before you really get a sense like you have a handle on where investors might be going for the year.